Defense in K’s formation
I. SOFII. IllegalityIII.UnconscionabilityV. Fraud and DuressIV. Capacityof the traders
Contracts defenses (common law)
Real defensesIf established, preclude the formation of a K.Few in number, but exceedingly powerful.Illegality of the bargain:Offerorhas dialed M for murderPersonal defenseAdmit K was formed, but renders person’s K duties voidable.Far more common and numerous
classification of the defense
Related to form of bargainStatute of FraudsAn oral bargain where the law requires for a remedy that there be a writing.Contentof the bargainSerious social objection to content of bargainEx: Illegality or substantiveunconscionability.Tactics of one of the traders informing thebargainFraud, constructive fraud, duress, and overreaching.Capacity of all the parties to the bargainOne of the traders was a minor, lacked the requisite mental capacity,ultra-virosactivity (beyond capacity of corporation)
Neither common law or UCC impose any mandatory form of the bargain.Ks can be and are a lot of timesoral.Oral contracts are perfectly valid, but it might present a problem if the subject matter of the bargain falls within the Statute of Frauds in terms oflitigation.
Consequence of No writing
If there is no written instrument of the terms, then there can be noremedy at lawforbreach of the contract, unless the result of allowing the D to invoke the Statute of Frauds would begross injusticein which case the equitable court will stop D from working behind the Statute of Frauds.
1. Ifsubject matter isreal property (land)or any permanent fixture attached to the real property, it falls within the Statute of Frauds.2.Contracts dealing withsale of goodsfalls within Statute of Frauds if price is$500or more.3.Any K which by its terms is incapable of being performed in 1 year.Etc.
Exception to Sale of Goods($500)
Underthe UCC, an oral K for the sale of goods is perfectly enforceable to the extent that the seller has delivered goods to the buyer and the buyer has accepted delivery.If both of the traders are merchants, a written confirmation of the terms of the bargain sent from one merchant trader to the other operates to satisfy the Statute of Frauds both to the sender and to the recipient unless the recipient objects to the contentpromptly.Special goods. Goods custom tailored or manufactured to the specific buyer’s order or specification and not suitable for ordinary leasing. To the extent that the fabricating seller has begun to fabricate (manufacture) the goods, the buyer’s promise to pay for them is totally enforceable.
If subject matter falls within the Statute of Frauds, a memorandum of essential terms signed by the parties to be charged is required.The writing can be very informal.Can be a series of writings stapled together, or a single document.If, through written evidence, we can reconstruct the written terms, that evidence must relate to the party to becharged.Signed by the parties to be charged – can be a rubber stamp of the person’s name, or a FAX transmission – doesn’t have to be signature.Why must the writing not be signed by the P?The P satisfies the Statute of Frauds when she files her complaint, alleging the terms and bears the signature of her attorney.
1. Timeor subject matter in which one of the parties became illegal.2. Subjectmatter became illegal when offer was outstanding (ex: crackdown on religious gambling, making it outlawed. If offer is outstanding, the offer is revoked by operation of law if not yet accepted. But, if offer is made, I had accepted it, and the K has not been performed (Executory) when it’s declared illegal… At common law, I claim relief by way oflegal impossibility.)
3. UCCeffort to save a bargain. If a K has been formed and is stillexecutory, and along comes along a supervening government regulation that makes the subject matter of the bargain illegal, as a merchant I must determine whether some substitute arrangement can be made, both legal and practicable. If there is, I must perform under the modified, substituted arrangement. You don’t have to accept (then I can claim objective legal impossibility). If you do accept, we have a valid K.
If the subject matter of the bargain or the participation of one of the parties isintrinsically evil(malumin se), then the attempted bargain isvoid.
Ex: If I put a K on my brother-in-law with a $10,000downpaymentto the torpedo, the subject matter is evil. Intrinsically evil. In this case, there is no K. No court will assist me even if I attempt to withdraw from the transaction and try to recover the $10,000.
If the subject matter is not intrinsically evil, but is prohibited by a statute or society has prohibited it, this ismalumprohibitum, wrong b/c society has prohibited it. Here, no K.Party who rendered valuable services may recover in quasi-contract for the market value of those services if she was unaware that the subject matter wasregulatedand thereforeoffensive.Recovery on quasi-contract – depends on whether the party is aware that the Koffends the law. If not aware, person can recovery in quasi-contract.
Both parties are aware to offense of law – subject matter of K, but if one of the parties is within the protected class of the statute, then the party may recover in quasi-contract for the market value of goods or services.Ex: child labor laws. If 15-year old child seeks to sell his labor, he is engaged inmalumprohibitum, even if he is consciously aware it’s illegal, he cannot recover on wage promised by the K, he can recover for market services which he has performed.
Wherebya term of an agreement, one of the parties seeks to avail himself of a privilege contrary to public policy in forming terms of the bargain. A seller of an inherently dangerous bargain attempts to exclude all warranties, even implied warranty of merchantability, it is not illegal, but it isunconscionable.
2. A reviewing court is capable of 2 reactions:It can refuse to have anything to do with the bargain (grant no relief at all).Court can blue pencil the bargain to remove or modify the unconscionable term while enforcing the balance of the exchange against the parties.3.To prevent oppression and surprise to the dominant party (contract of adhesion, take it or leave it proposition).If terms offend public policy, it can be policed forunconscionability.
One of the parties at the formation stage uses formation tactics designed to not give trader fair opportunity to appreciate the terms she is objectively consenting to. This is the individual who does business in fine print, who expresses terms of K in legalese and takes fine print document in legalese in an area dealing with consumers where they wouldn’t know the terms or what they are waiving.
IV. Fraud & Duress
1.Fraud①Fraud in the factum (real fraud)Any contrivance or artifice that prevents the fraud victim to appreciate the fact that the K iseven incontemplation② Fraudin the inducementVictim is aware of K in contemplation, but consent to enter the K is seduced by lies or half-truths.Victim has opportunity to assert defense and have these obligations voidable.
③Fraud in the execution.-Victim– where the K is formed. His consent is validly obtained. Fraud – bargain is oral, now the victim trusts the other party to reduce their oral agreement to a formal, written expression which the other party does and says here’s our deal and the victim trustingly signs the deal without closely examining it. Later, it turns out that the person preparing the writing suffers from selective memory. Now, fraud in the execution. Obligations expressed in the paper are voidable if the victim chooses to raise the defense.
① Duressof the personMental forcePhysicalforce(Ex: Gun to yourhead)Force directed against victim and they always render the consent of the victimvoidable.Force –offer you cannot refuse(signature on the paper, brain is on the wall; or signature on the paper and you’ll see your child again).Threats of duress are calledmenaceand are treated by the common law as duress and are treated as the same.
② EconomicduressDuress of goodsEx: One of the parties has some desperate pressing need for the subject matter and the other trader taking conscious advantage of that need insists upon harsh and one-sided terms. There must also be active pressure by the party or has actively intermeddled to make the pressure worse.Overwhelming pressure, created by or exacerbated by aggressor, coupled with harsh terms, only then do you have defense of economic duress.
You’re in a desert and there is a gas station. And person says: $1,000 for the gas. Defense of economic duress?No. Harsh, one-sided terms. There may be someunconscionability,but no economic defense b/c we didn’t create the plight that drove you to our station. Economic duress if we’re responsible for your circumstances (i.e., if we drained the gas from your car and you needed gas as a result).
V. Capacityof thetraders
Where one of the traders is aminor, under the common law, the K obligations ofminorsare voidable, yet the promises do amount to valuable consideration because the law says so.If the minor does not assert the defense, he is deemed to waive it. If, in litigation, minor asserts the defense that he was under the age of legal consent when the K was formed, there can be no recovery under terms of K by the adult.If the minor has consumed the benefits of the K and these are regarded as necessary (food, shelter, clothing, medical care), P adult may recover in quasi-contract for the market value of these services (but not monetary damages).
1.K obligations of individual who permanently or temporarily lacked mental powers to form a K.2. Recoveryon quasi-contract if the subject matter is a necessary (see above); if not, no liability at all.3. Ex: Individual with self-induced mental incapacity (like being drunk).
4. Commonlaw is divided. If mental incapacity is temporary and self-induced, we have no sympathy for that person and defense cannot be raised.Dominant and more modern view: if other person knowingly dealt with person he appreciated or should have appreciated was suffering under influence of alcohol, drugs, etc. – if other party knew about it, I may have the defense.